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Declared Homestead- How does a voluntary sale actually work? How do you get through escrow if your equity is protected? - CA

Woodland Hills, CA |

Ok, so I have read all around about the Declared Homestead & exemptions & the dollar value that it protects of my equity. My question is this. If I voluntarily sell my house or plan on selling my house & I have a Declared homestead prior to selling & a judgment lien from a bank is placed on the property after the declared homestead. How does the sale go through title/escrow if there is no equity on the home. So, lets say I sell the home for $650k & I owe Mrtg balance/fees totaling $575k & the equity left over is $75k & that happens to be my exemption amount. How does the property get through title & escrow in CA if I am not paying off this lien through the sale. The lien attaches only to the excess equity, do I need to get the lien off the property by proof of the declared homestead?

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Attorney answers 1


An interesting question at the juxtposition between law and business risk. A declared homestead recorded before perfection of a judgment lein or an abstract of judgment protects certain homestead equity from levy by the judgment creditor. If there is excess equity, the property may be sold to satisfy the judgment, and the debtor keeps the amount exempted under the homestead. As a matter of law, if the homestead is $75K and the net sales proceeds are $75K, then the judgment cannot attach to the sale proceeds and the homestead owner (debtor) is free to take the money and reinvest it in another residence within 6 months. But, that is the legal side - the busienss side is another story. On the business side, a title company will not get involved in that legal analysis and the risk. So, the buyer’s title company will make the judgment an exception to the policy which essentially kills the deal. No ordinary buyer and no lender will accept title with a preexisting recorded abstract of judgment. There are only three ways to get rid of the judgment so as to be able to pass marketable title to a buyer: 1) a voluntary removal of the judgment by the creditor; 2) a bankruptcy order discharging the debt and removing the lien to the extent it interferes with the homestead exemption, and 3) a judgment for quiet title filed in State court.

Richard A. Rodgers, Esq.
(805) 230-2525
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362

As stated in the AVVO.COM Terms and Conditions of Use, this answer is not intended as legal advice, and no attorney-client relationship or privilige is created by this response.

Richard Alan Rodgers

Richard Alan Rodgers


p.s. The voluntary withdrawal may be encouraged by the creditor's desire to avoid litigation of a quiet title lawsuit.

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